Romania‘s growing economy and strategic location in Eastern Europe make it a compelling destination for entrepreneurs looking to expand their business ventures. Here are essential aspects of starting a business in Romania, including the various legal forms available, tax regulations, and the taxation of dividends and capital gains.
Romania’s business environment
Romania, as a member of the European Union, benefits from regulatory stability and access to a large market. Romania‘s diverse economy, which includes industries such as IT, manufacturing, and services, provides ample opportunities for new businesses. Entrepreneurs considering Romania should be aware of the legal and financial frameworks that govern business operations.
Choosing the right business entity
Selecting the appropriate legal form for your business is crucial. Romania offers several types of business entities, each with its own advantages and requirements.
1. Limited Liability Company (Societate cu Răspundere Limitată – SRL)
- Share Capital: The minimum share capital required is RON 200 (approximately EUR 40). This low threshold makes SRL a popular choice for small and medium-sized enterprises (SMEs).
- Liability: Shareholders’ liability is limited to their contributions to the company, protecting personal assets.
- Management: SRLs can be managed by one or more directors, providing flexibility in business operations.
2. Joint Stock Company (Societate pe Acțiuni – SA)
- Share Capital: The minimum share capital is RON 90,000 (about EUR 18,000). This higher capital requirement is suited for larger businesses and those planning to raise capital through public offerings.
- Liability: Shareholders’ liability is limited to their shareholdings, offering robust protection for personal assets.
- Structure: SAs must have a Board of Directors and an Auditor, ensuring more formal management and oversight.
3. Sole Proprietorship (Întreprindere Individuală – II)
- Share Capital: No minimum share capital is required, making it a cost-effective option for solo entrepreneurs and freelancers.
- Liability: The owner is personally liable for all business debts, which means personal assets could be at risk.
- Management: This structure is straightforward, with the owner handling all aspects of the business.
4. Partnership (Societate în Nume Colectiv – SNC)
- Share Capital: No minimum capital requirement.
- Liability: Partners share joint and unlimited liability for business debts, which can be risky but may foster strong collaboration.
- Usage: This form is less common but can be advantageous for certain types of joint ventures or professional partnerships.
Get familiar with Romania’s tax regime
Understanding the tax landscape in Romania is essential for financial planning and compliance. Here’s a breakdown of the key taxes applicable to businesses:
1. Corporate Income Tax
- Rate: The standard corporate income tax rate is 16%. This rate applies to profits earned by most companies.
- Microenterprise Tax: Businesses with annual revenues up to RON 1 million (about EUR 200,000) may opt for a simplified tax regime. The microenterprise tax rate is 1% if the business has employees or 3% if it does not.
2. VAT (Value Added Tax)
- Standard Rate: The standard VAT rate is 19%, applicable to most goods and services.
- Reduced Rates: Reduced VAT rates of 9% and 5% apply to specific items such as food products and medical supplies, helping to lower costs for businesses in these sectors.
3. Social Contributions
- Employer Contributions: Employers must contribute to social security, health insurance, and unemployment funds. The total contribution rates are approximately 22.5% of gross salary.
- Employee Contributions: Employees contribute around 10.5% to social security and 10% to health insurance from their gross salary.
Taxation of dividends and capital gains
For business owners, understanding the taxation of dividends and capital gains is vital for effective financial management.
1. Dividend Taxation
- Rate: Dividends distributed to shareholders are subject to a withholding tax of 5%.
- Exemptions: Dividends paid to entities within the European Union (EU) may be exempt from withholding tax if certain conditions are met, promoting cross-border investment within the EU.
2. Capital Gains Taxation
- Rate: Capital gains from the sale of shares or other assets are generally taxed at a rate of 10%.
- Exemptions: Capital gains may be exempt if derived from the sale of shares listed on a stock exchange or from specific types of business transactions under certain conditions.
Recent developments and practical tips
Starting a business in Romania offers exciting opportunities, thanks to its favorable economic conditions and strategic position in Europe. By choosing the right legal form, understanding the tax regime, and being aware of the taxation on dividends and capital gains, you can set a solid foundation for your business.
For ongoing updates and news, Damalion experts monitor local business news sources and official announcements from Romanian government agencies. This proactive approach will help you navigate the Romanian business landscape with confidence.
Damalion helps international entrepreneurs to register their company in Romania with business bank accounts. Contact your Damalion expert now.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
